Smarter Loans Inc. is not a lender. Smarter.loans is an independent comparison website that provides information on lending and financial companies in Canada. We work hard to give you the information you need to make smarter decisions about a financial company or product that you might be considering. We may receive compensation from companies that we work with for placement of their products or services on our site. While compensation arrangements may affect the order, position or placement of products & companies listed on our website, it does not influence our evaluation of those products. Please do not interpret the order in which products appear on Smarter Loans as an endorsement or recommendation from us. Our website does not feature every loan provider or financial product available in Canada. We try our best to bring you up-to-date, educational information to help you decide the best solution for your individual situation. The information and tools that we provide are free to you and should merely be used as guidance. You should always review the terms, fees, and conditions for any loan or financial product that you are considering.
If you’re over 55 years of age and own your home, then you have the potential to receive financial help via a reverse mortgage. Reverse mortgages are increasingly popular, but it’s important to understand how they work before you dive in. So here reverse mortgages are explained in full, including detail on how to find the best reverse mortgage rates in Canada, and how to apply for a reverse mortgage.
A reverse mortgage, also known as an “equity release” or a “home equity conversion mortgage” is a financial product designed for Canadian homeowners who wish to access the equity they have built up in their homes, without selling it. This unique type of loan is secured against the property, and provides access to immediate tax free cash, offering financial flexibility and security for the borrower without the stress of the regular repayments associated with other types of loan.
There are a couple of different types of reverse mortgage, and a couple of different reverse mortgage lenders – so reverse mortgage costs and reverse mortgage terms and conditions can vary quite a bit. It’s therefore worth shopping around to find the right product for you.
As with a standard mortgage loan, a reverse mortgage is secured against real estate; but the similarities end there. Reverse mortgages do not require regular loan repayments; in fact, there are no reverse mortgage monthly payments of any kind. Instead, the loan’s principal and interest accrue over time, so the loan grows in value rather than shrinking. This structure allows reverse mortgage borrowers to access tax-free cash without worrying about repayment, until the reverse mortgage is closed.
Canadian homeowners must be at least 55 years old in order to access a reverse mortgage loan. If multiple people are listed on the title of the property, then all must meet the reverse mortgage age requirement.
Reverse mortgages are considered “life” loans, meaning they last the duration of the borrower’s lifetime, or the length of time the reverse mortgage borrower owns the home. The loan terminates when the homeowner leaves the property, sells it, or passes away. At that point, the property’s sale covers the entire loan balance, including all interest payments and any reverse mortgage fees.
Canadian homeowners can choose from several types of reverse mortgages; these are basically the same in structure, but offer different ways to access loan funds. Homeowners can opt for a lump sum payment of loan funds, or they can use the mortgage to establish a line of credit, which can be drawn from as needed.
The amount a homeowner can borrow through a reverse mortgage in Canada depends on their age, the fair market value of their home, and the amount of equity they have in it. Lenders use a percentage of the home’s value to determine the maximum amount of the loan; this percentage is usually capped at 55%.
Reverse mortgages in Canada provide tax free cash, which in no way affects pension income or pension eligibility.
Reverse mortgages in Canada are useful tools if you have built equity in your home but lack cash, but this doesn’t mean they’re without risk. It’s vital for homeowners to be aware of all the pros and cons:
The reverse mortgage companies in Canada are:
All three reverse mortgage lenders have their own criteria; for example, both Equitable Bank and Home Equity Bank have minimum home value requirements. Bloom and Equitable Bank only offer reverse mortgages in specific parts of the country. The lack of providers also means there is less competition than with other types of loans, so reverse mortgage interest rates in Canada are higher than for some other financial products.
Reverse mortgage rates in Canada vary from lender to lender, and from applicant to applicant. They can depend on the applicant’s age, details of the home being mortgaged, location, and type of reverse mortgage being applied for. In addition, the interest rate on a reverse mortgage in Canada can be fixed or variable, and for different lengths of time. Current rates for reverse mortgages range from 5.49% to 9.4%. To ensure you’re accessing the lowest reverse mortgage rates possible, consider using a reverse mortgage broker to help you get the best deal.
The top reverse mortgage companies, named above, account for essentially the entire Canadian marketplace, so it’s not too onerous to compare reverse mortgages from all three and find the best for you. However, it is still recommended that homeowners seek independent legal advice when considering this type of mortgage; there are reverse mortgage scams that charge suspicious interest costs, obscene closing costs, and so on. The key to successfully avoiding these scams is to obtain the help of a reputable mortgage broker.
Reverse mortgage rates in Canada can vary with the lender, the borrower, and the product chosen; this can make comparing your options quite tricky. One simple way to find the best reverse mortgage rates in Canada is to obtain free estimates from the top reverse mortgage lenders, and then to compare what’s on offer for you, right now. Alternatively, a professional mortgage broker will be able to provide guidance on mortgage terms, costs and borrowing options. They can also walk you through a simple reverse mortgage example so you can understand exactly what’s possible.
Those wishing to apply for a reverse mortgage can do so by following a few simple steps:
During the application process you will be asked to provide:
Once you have taken out a reverse mortgage, you must meet all reverse mortgage guidelines, such as maintaining the home in a good state of repair, keeping it as your primary residence, and paying all property taxes.
Reverse mortgage requirements do not contain the same stipulations regarding credit score as other forms of borrowing, making them much more accessible than traditional mortgages and personal loans. This means that those with bad credit can still access a reverse mortgage, as long as they are over 55 years of age and the property in question qualifies.
Crucially, this also means that reverse mortgages provide an avenue to home ownership for older Canadians with bad credit, as buying a house with a reverse mortgage is allowed by some providers, and bad credit borrowers usually do not qualify for traditional mortgages.
There are several events that can trigger the end of a reverse mortgage contract and loan repayment:
In any of these cases, the entire loan sum plus interest and fees must be paid back to the reverse mortgage lender within a set amount of time (stipulated by the loan contract).
It is also possible to pay back a reverse mortgage early, without any of the above happening; however there may be prepayment penalties for doing so. And in some cases, borrowers may have the option to repay the loan via partial payments over time, thus reducing the interest burden of the loan in the long term.
